The energy sector includes oil and gas exploration and production, petrochemicals and refineries, fuel, power, energy efficiency, conservation and renewable energy.
This sector accounts for more than 60 per cent of Brunei’s Gross Domestic Product (GDP). It currently provides steady employment to 24,000 people. It also contributes significantly to government revenues that are invested for the social and economic development of the country.
The energy sector in Brunei Darussalam traces its roots back to the first oil discovery in 1910. The first commercial oil production in the country started in 1929 from the onshore Seria field, reaching its peak production at 115,000 barrels per day in 1956.
Oil development activity spurred development in other sectors of the economy – first in supporting infrastructure and services and later, as the economy developed, on a more diversified basis. In the 1970s, the first oil crisis led to increased efforts to explore and produce in Brunei. This led to increased oil production, which reached a peak of 254,000 barrels per day in 1979 before the government imposed a strict conservation policy to restrict production at 150,000 barrels per day in 1981. The government has since revised the policy, which resulted in an increase of production.
In 2006, Brunei achieved an oil production of 219,000 barrels per day. Currently, the country is producing around 372,000 barrels of oil equivalent per day
(BOEPD). The presence of significant associated natural gas and the discovery of giant offshore gas fields enabled Brunei to play a pioneering role in the nascent Liquefied Natural Gas (LNG) industry back in 1972. Brunei’s LNG production grew rapidly to a peak in 2006. The natural gas produced also enabled the development of downstream industries like the Brunei Methanol Company (BMC).
Of Brunei’s total domestic energy consumption in 2013, oil was the most consumed fuel type, accounting for 65.6 per cent, followed by electricity at 32.2 per cent and town gas at 2.2 per cent. Thermal power stations generated 99.95 per cent of total power, while 0.05 per cent was generated by the Tenaga Suria Brunei solar power plant.
As the country developed and industrialised, there was also an increasing need for power to generate electricity for industrial and residential uses. From the first fuel oil plants built in 1935, Brunei now has about 806 megawatts of installed capacity in power generation and the ability to generate 3.5 million megawatt hours of energy for electricity and other uses.
To drive Brunei’s economy into a sustainable future, the country supports the implementation of strategies related to energy security, diversification of supply, energy efficiency and conservation. The government is working to achieve the country’s target while exploring plans to diversify the energy mix through a concerted effort and promotion of alternative and renewable energy sources for power generation.
As current prosperity cannot be taken for granted, the Brunei Vision 2035 (Wawasan Brunei 2035) was launched with three main goals for the country:
• To make Brunei a nation which will be widely recognised for the accomplishment of its educated and highly skilled people as measured by the highest international standards.
• To achieve quality of life that is among the top 10 countries in the world.
• To build a dynamic and sustainable economy with an income per capita among the world’s top 10.
To ensure the accomplishment of these goals, eight strategies have been identified in the Brunei Vision 2035, in ensuring that all aspects of development are being implemented systematically and effectively, covering among others, education, economic development, local business development and environment strategy.
The growth in the energy sector is being addressed by the Energy and Industry Department at the Prime Minister’s Office (EIDPMO) through three strategic goals:
Strategic Goal 1 – Strengthen and Grow Oil and Gas Upstream and Downstream Activities
Strategic Goal 2 – Ensure Safe, Secure, Reliable and Efficient Supply and Use of Energy
Strategic Goal 3 – Maximise Economic Spin-Offs from Energy Industry – Boost Local Content and Secure High Participation of Local Workforce
The EIDPMO has developed 10 key performance indicators (KPIs) in order to address needs across the different segments and parts of the value chain in the energy sector.
An initial set of supporting initiatives has also been identified in order to ensure that the energy sector delivers its targets by 2035, thus ensuring a sufficient buffer period to take into account any final additional or mitigating actions needed to attain the set targets.
To ensure that this transformational step-up in the energy sector is achieved, change needs to stem from an increased ability to compete and openness to investment and knowledge. While leveraging critical regulatory support and government oversight to accelerate results, there is a need to educate and train people and grow the capabilities of the country’s industries.
Hence, four key enablers have been identified to ensure that Brunei grows in a manner that is competitive and sustainable. These are:
Enabler 1 – Implementing supportive policy and regulatory frameworks
Enabler 2 – Growing Bruneian human capital
Enabler 3 – Attracting investment to fuel growth
Enabler 4 – Ensuring delivery on commitments
The attainment of these goals for the energy sector will support and ultimately achieve the goals under the Brunei Vision 2035. The initiatives developed to achieve these goals are part of a journey, and not a one-off effort.
The EIDPMO, the entirety of the government, public and private investors in the energy sector and the public at large will have to labour diligently over the next two decades to continuously improve the country’s success in the energy sector and to ensure that the goals are achieved.
Brunei has responded to sharply lower oil prices by launching policy reforms to transform its oil and gas-dependent economy. While the country is able to absorb the oil revenue slump for several years by drawing on buffers built over the past decades, the authorities have begun a process of structural reforms to reconfigure the government towards enhanced economic performance, combined with fiscal adjustment to ensure long-term sustainability and intergenerational equity.
These were some of the observations made by the Executive Board of the International Monetary Fund (IMF) when it concluded its 2016 Article IV consultation 1 with Brunei. According to the IMF officials, real gross domestic product (GDP) in 2015 registered a smaller decline compared to the preceding two years. Oil production, in particular, has been recovering since the second half of 2015 from protracted disruptions since 2012 related to oil facility maintenance and refurbishment.
Activity in the non-oil and gas sector slowed down due to fiscal consolidation and lower services linked to the oil and gas sector, but the slump was partially offset by government infrastructure construction projects. Inflation averaged -0.4 per cent in 2015, driven by the appreciation of the Singapore dollar to which the Bruneian dollar is pegged, relative to neighbouring countries which are major sources of Brunei’s imports.
The current account surplus narrowed mainly on lower oil and gas exports, while the fiscal balance turned into a large deficit. The real GDP is projected to turn positive in 2017 on the back of a recovery in oil production, but growth will remain moderate until 2019. Lower oil prices are projected to keep the fiscal position in deficit for several years.
The current account is projected to register small deficits in 2017 and 2018 due to low oil prices and imports associated with the foreign direct investment (FDI) projects. Nevertheless, growth and macroeconomic balance are expected to strengthen markedly from 2019 as new energy downstream facilities come on-stream.
Main risks arise from lower-for-longer oil prices that could severely erode the fiscal position, while delays in production from new facilities could dampen the medium-term outlook. Slow progress in structural reforms could dim prospects of economic diversification. The Brunei authorities have implemented measures to adjust to lower oil prices, raise productivity, enhance efficiency and promote economic diversification. Fiscal adjustments began in the latter part of 2015, aiming to better prioritise expenditures towards economic diversification and efficiency.
In its assessment, the IMF executive directors noted that after over a decade of sizable fiscal and external surpluses from high oil prices, Brunei’s economy is adjusting to a challenging environment of a prolonged period of low oil prices.
While the country has sizable buffers, the directors commended the authorities for using the opportunity provided by the low oil prices to reconfigure policies to support enhanced economic performance, long- term fiscal sustainability and intergenerational equi- ty. Against this backdrop, the directors underscored the importance of continuing to push ahead with fis- cal and structural policy reforms to strengthen and diversify the economy.
The IMF directors agreed that the fiscal year 2016- 17 budget provides an appropriate target for fiscal adjustment, but it needs to be buttressed by tight spending controls, increases in non-oil revenue and improvements in public financial management.
The directors noted that the fiscal policy strategy should be anchored in a multi-year programme of structural fiscal reforms to improve the efficiency and composition of public spending, while support- ing growth.
In this regard, they called for measures to tackle price and wage distortions in order to increase the attractiveness of private sector employment as well as promote growth in the non-energy sector.
The directors urged freezing the wage bill and reducing untargeted subsidies, particularly through fuel subsidy reforms, accompanied by mitigating measures to protect the vulnerable, where appropriate.
In January 2016, Pehin Datu Singamanteri Colonel (Rtd) Dato Seri Setia (Dr) Awang Haji Mohammad Yasmin bin Haji Umar, Minister of Energy and Industry at the Prime Minister’s Office, addressed the importance of facing the reality of current oil prices at a Brunei Shell Joint Venture (BSJV) SME Event in Seria.
“In this economic climate, SMEs need to be innovative and use technology to find more efficient ways of doing things and delivering your projects. SMEs should also find ways how to contribute to the nation,” said the Minister. He stressed that efficiency is the critical factor to strengthen companies and their capacity to succeed in this challenging environment.
“I am grateful to Brunei Shell Petroleum (BSP) for continuing to commit to local spending even during these tough times. This shows that BSP knows the upside and downside of this market and they are prepared for this downturn,” he added. He also touched on the government and industry’s collaboration in driving local business development (LBD) in the oil and gas industry, speaking on what has been achieved over the last five years.
“We have set up a robust framework, based on the four quadrants of basic, development, core and highly specialised activities, which has ensured two things: a level playing field which actively prevents monopoly; and better opportunities and growth for our SMEs.” This renewed focus, he continued, has also boosted local content, both in terms of local spending and use of local workforce.
The local content spending was around 54 per cent in 2015, as opposed to less than 15 per cent in 2010. As for employment, there are more than 16,495 locals working in the oil and gas sector out of the 26,205 total workforce. This is 63 per cent of the total, against less than 50 per cent in 2010. The Minister also shared that 43 local companies have been awarded contracts for the first time by BSJV, worth a total of B$921 million.
“While there has been substantial progress, there is still a lot to do to achieve our 2035 oil and gas target for employment as it is more challenging now with the current economic climate.”
He asserted that the EIDPMO will continue to ensure compliance to the LBD Directives issued in 2011 and 2012 to ensure a pro-business environment in the oil and gas industry. These initiatives will be replicated for the non-oil and gas industry as well, he added.
The Minister urged all SMEs not to give up, even in this time of low oil prices and uncertain economic environment.
In November 2016, Total E&P Borneo BV (TEPB) celebrated its 25th anniversary with its Block B joint venture partners. The French oil giant also celebrated its 1st Gas Delivery from the Maharajalela Jamalulalam – MLJ3 Platform.
The Minister of Energy and Industry who officiated the event congratulated TEPB and all parties involved in the success of MLJ3’s 1st gas delivery for a job well done.
He also lauded the company for its strong support and commitment to Brunei and to the nation’s local business development drives. “I understand that currently, there are 69 local Bruneians out of 104 employed with TEPB. This is good to hear and I hope that in future, this figure will increase further. I am also pleased to note that there are 10 Bruneian scholars who are currently undertaking the Total Education Scholarship Scheme. I believe that Total E&P Borneo BV will continue to support our local youths in their education and their career in the foreseeable future,” said the minister.
The Minister stressed the need to work hand in hand to further boost local business development and increase local content. “Involvement of our very own local companies and workforce in the services sector is still very minimal and there is still so much more that we can do. I certainly want to encourage our local MSMEs to participate more. The fact that Total E&P Borneo BV chose to do the fabrication of the MLJ3 platform in Brunei shows the faith that they have in the commitment and the capabilities of our local workforce and local companies, which have paved the way for more projects of that scale to be done in Brunei Darussalam,” he commended.
The Minister also noted that despite the current volatility in oil prices, TEPB and its joint venture partners have continued to show strong commitment
towards the development of the resources at the Maharaja Lela Jamalul Alam Field which shows their confidence in Brunei’s upstream sector.
The Minister also stressed that most importantly, companies must adhere strictly to the laws and rules enforced in Brunei, especially those pertaining to Health, Safety, Security and Environment. He appreciated Total E&P Borneo BV for clocking more than 16 years without any Lost Time Injury since its first production in 1999.
He added that a national authority on Health, Safety and Environment (HSE) will be launched in 2017 to support HSE culture in the country.
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